The multitudinous “if” and “but” factors

Thu, 2013-01-24 10:21

Truckers more than anyone thoroughly understand the old saying that “if” is the middle word in “life” because, frankly, no matter how well freight shipments are planned out, something always goes wrong.

The typical culprits, of course, are the weather and traffic congestion, followed by still-too-frequent dock delays either while picking up or delivering a load. Then there are the myriad of things that can go kablooey on a truck or trailer, not to mention the ever-present fear that an accident can sideline a rig completely.

Yet, despite all of those uncertainties, freight shipments are still mapped out as though they will travel from Point A to Point B relatively hitch-free. Indeed, in some ways, they must be – because if all the possible misfortunes that could befall any one shipment were spelled out in detail, nothing might move at all.

“Stop, stop!,” Robert E. Lee (at right) told one of his generals as the man laid out all the reasons the badly outnumbered Confederate forces could not defeat George McClellan’s massive 200,000-man Union army then menacing Richmond, VA. “If you go on ciphering, we are whipped beforehand!”

[That exchange took place before the Battle of the Seven Days, when Lee’s forces not only drove McClellan’s soldiers away from Richmond, but effectively neutered the offensive capability of the Union army for long months to come.]

The same theories – to a degree – hold sway when it comes to economic forecasting, as predictions for world and the various regions within it are made based on the unending caveat that nothing really bad happens along the way.

Thus we come to the International Monetary Fund (IMF) and its latest World Economic Outlook (WEO), which projects that while global growth will strengthen gradually in 2013, the recovery (such as it is) will remain slow, while a variety of government policies will be needed to address what the global agency dubs “downside risks.”

“Global growth is projected to increase during 2013, as the factors underlying soft global activity are expected to subside,” the IMF said.

“Economic conditions improved modestly in the third quarter of 2012, with global growth increasing to about 3%, [with] the main sources of acceleration from emerging market economies, where activity picked up broadly as expected, and the U.S., where growth surprised on the upside,” it added. “Financial conditions stabilized, bond spreads in the Euro area periphery declined, while prices for many risky assets, notably equities, rose globally. Capital flows to emerging markets remained strong.”

Altogether, global economic growth is projected by the IMF to strengthen to 3.5 % this year from 3.2% in 2012.

However, here’s one of the man “buts” peppering the latest WEO. “While global financial conditions improved further in the fourth quarter of 2012, a broad set of indicators for global industrial production and trade suggests that global growth did not strengthen further,” the IMF noted.

“Indeed, the third-quarter uptick in global growth was partly due to temporary factors, including increased inventory accumulation, mainly in the U.S,” the agency explained. “It also masked old and new areas of weakness. Activity in the Euro area periphery was even softer than expected, with some signs of stronger spillovers of that weakness to the euro area core, while in Japan, output contracted further in the third quarter.”

Now we get to one of the bigger “if” marks in the WEO. “Growth in the U.S.is forecast to average 2% in 2013, rising above trend in the second half of the year … as underlying economic conditions remain on track,” the IMF pointed out. “In particular, a supportive financial market environment and the turnaround in the housing market have helped to improve household balance sheets and should underpin firmer consumption growth in 2013.”

And yet … those projections are predicated on the assumptions that the spending sequester will be replaced by back-loaded measures and the pace of “fiscal withdrawal” at the general government level – that means reducing deficit spending, by the way – in 2013 will remain at 1¼ percent of gross domestic product (GDP).

“If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected,” the IMF concluded. “However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the U.S. For the U.S., the priority is to avoid excessive fiscal consolidation in the short term, promptly raise the debt ceiling, and agree on a credible medium-term fiscal consolidation plan focused on entitlement and tax reform.”

Talk about a huge “if”! Wow! All we need to do is reduce deficit spending – meaning cuts to entitlements like Social Security and Medicare – PLUS reform the tax code in the bargain! Whew!

Then again, what else is there to do put push forward and see if those predictions for good economic growth can be made to come true.